Accounting Misstatements Following Lawsuits Against Auditors

48 Pages Posted: 18 Sep 2012

See all articles by Clive S. Lennox

Clive S. Lennox

University of Southern California

Bing Li

City University of Hong Kong (CityUHK)

Date Written: September 18, 2012

Abstract

This study investigates whether financial reporting quality is affected by an auditor’s experience of litigation in the recent past. We find that the likelihood of an accounting misstatement and the magnitudes of misstatements are significantly lower for non-Big 4 auditors who recently suffered high litigation compared with non-Big 4 auditors who did not. In addition, we find an improvement in financial reporting quality subsequent to the recent litigation experiences of Big 4 offices. These results are consistent with our prediction that auditors learn from their past experiences of litigation and that this leads to higher financial reporting quality.

Suggested Citation

Lennox, Clive and Li, Bing, Accounting Misstatements Following Lawsuits Against Auditors (September 18, 2012). Available at SSRN: https://ssrn.com/abstract=2148330 or http://dx.doi.org/10.2139/ssrn.2148330

Clive Lennox (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Bing Li

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Department of Accountancy, AC3
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/bingli/

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